Mortgage Rates to Decline Significantly, World Bank Forecasts

The World Bank has projected a significant drop in mortgage rates by the end of 2026, linked to inflation cooling down to the Federal Reserve's target of 2%. This shift is set to enhance the housing market, which has been burdened by high loan costs and elevated prices. Despite high rates stemming from rapid rate hikes since March 2022—to a two-decade peak of 5.25 to 5.5%—the forecast suggests easing financial strains, with U.S. economic growth expected to outperform previous estimates in 2024.

Economists at the World Bank believe that as inflation moderates, borrowing costs will decrease, potentially buoying the housing sector. The U.S. economy is also projected to grow by 2.5% in 2024, an improvement from earlier predictions. However, a slowdown to 1.8% growth is anticipated in 2025 due to the lingering effects of monetary tightening.

The Bottom Line

The anticipated reduction in mortgage rates could mark a pivotal turn for the U.S. housing market, making homeownership more accessible and potentially stimulating broader economic stability. As rates decline, the market may see a resurgence in buyer activity, providing a much-needed boost to the housing industry.